For most Americans, health care is a cost and a burden. But one man's costs are always another man's income: for some Americans, medical care is also a market and a glistening opportunity.
A New York consulting firm, Channing, Weinberg, has published a report on "The Cardiovascular Surgery Market." It is a description of "business opportunities in the United States arising from thoracic cardiovascular surgery."
A Chicago investment firm, William Blair & Co., did a study for clients last fall on the earning prospects of American Hospital Supply Corp. It found one unit of AHSC to be an "attractive business with excellent growth in heart valves," said reassuringly that another was unlikely to continue losing "market share in large volume parenternals," intravenous feeding solutions.
The president of a company called Med General appeared last spring at a symposium for investors and market analysts held by Alex Brown & Sons, investment bankers. His subject was pain; his company manufactures electronic pain-control devices.
"There are an estimated 30 million Americans suffering from chronic pain today," he told his audience. "A 1 percent penetration of this 30 million patients is 300,000 stimulator units per year, which is more than a $100 million market in the U.S. alone."
An officer of a large for-profit hospital chain used similar language in setting out his company's objectives a few weeks ago. The company tries "to identify a penetrable market that has a need for a customized private acute-care facility," he said, then builds to meet demand.
Private enterprise in many ways has been good for medical care in America. It has produced important, sometimes lifesaving technological advances, is a timely daily supplier of a wondrous variety of products, and has been an important source of new management techniques for hospitals and other medical institutions.
But the other side of the coin, sometimes less looked at, is that medical care also has been very good for private enterprise -- particularly, and ironically, in the last 10 years when government spending on health care has risen so.
The United States is now spending about $200 billion a year on health care. The heart of that spending -- more than 40 percent -- is in hospitals.
We are not accustomed to thinking of hospitals as having a commercial role; most U.S. hospitals -- six out of seven -- are still nonprofit institutions. But nonprofit can be a deceptive word.
Many nonprofit hospitals are in part simply economically neutral buildings in which for-profit activities occur. Entire departments of non-profit hospitals are often franchised out to profit-making corporations.
One Chicago-based company, ServiceMaster Industries Inc., now does the janitorial work -- housekeeping, maintenance, sometimes laundry -- for about one out of 10 U.S. hospitals. Another company, Shared Medical Systems Corp., is the data-processing department for one U.S. hospital in 20. Laboratory work is frequently farmed or franchised out; so is patient feeding. Sometimes a group of doctors will form a company to run -- in effect, to become -- a hospital's emergency room.
In economic terms, moreover, hospitals -- however organized -- are simply conduits for cash; the hospital is not where the money comes to rest.
About two-thirds of the income of the typical hospital goes out in labor costs. Medical care is a laborintensive activity, and labor is a hospital's largest expense.
But hospitals also spend billions each year for technology and medical devices and supplies.
Some of the companies that sell to them are household names, and not for their medical products. General Electric is not thought of as a health company, yet it is a leading manufacturer of X-ray equipment. Hewlett-Packard makes cardiac and other kinds of electronic monitoring equipment.
Minnesota Mining & Manufacturing -- the 3M Co. -- also makes patient monitoring equipment, as well as dental equipment and prosthetic devices.
Dupont has moved into blood analysis; the chemical company sells blood testing machines, then sells the chemicals the machines require. Colgate Palmolive has a division that manufactures bandages, surgical dressings and nonwoven (paper) disposable surgical drapes.
Sun Oil last year bought a one-third interest in Becton Dickinson, a leading manufacturer of needles, syringes and blood continers. That purchase is being challenged in court, however.
The Sears Roebuck of the hospital supply industry is American Hospital Supply Corp. The company had sales in 1977 of $1.5 billion; it now sells perhaps an eighth of all the hospital supplies in America.
It has figured out, as one of its vice presidents told a group of stock market analysts recently, that "the average 250-bed hospital, with an average occupancy of 75 percent, spends approximately $10,000 per bed per year for supplies."
His company, he went on, has the products to meet between 55 and 60 percent of this demand. "For the average 250-bed hospital... this means we can provide between $5,500 and $6,000 of the $10,000 the hospital is spending... But a 500-bed hospital often purchases $13,000 to $14,000 per bed per year, and it's not uncommon that a 1,000-bed hospital spends over $15,000.... We can satisfy 55 to 60 percent of those supply needs, too."
AHSC has about 2,000 salesmen, that is two salesmen for every seven hospitals in the country. They sell 113,000 products that the company either makes itself or buys and distributes.
AHSC is a bionic parts depot. It manufactures or distributes eyes (artificial lenses), ears (hearing aids), false teeth, a computerized artificial "voice," artificial arms, hands, legs, knees, hips and feet, heart valves, the electronic equivalent of a nervous system (pacemakers), plastic blood vessels and direct-from-the-factory body fluids (intravenous fluids). If you want to be a burlesque queen, AHSC will sell you the necessary silicone, shaped to need.
It will sell the surgeon his gown (either cloth and reusable or paper and disposable), scissors, needle and thread.
It has a computer a hospital can use as its supply department. The computer can read voices; the hospital purchasing officer can order what he needs, whenever he needs it, directly from the machine by telephone. The company also has divisions that will help organize (while of course supplying) a hospital's kitchen or its laundry. Another division will rent a patient a TV set while he or she is getting used to the AHSC spare part.
Critics occasionally say that prices for medical devices and supplies are inflated. The General Accounting Office did a study for the Senate Finance Committee of prices paid for 27 items by hospitals in Seattle. In some cases one hospital was paying 10 times the price paid by another, the implication being that these prices were largely froth.
The industry, of course, says prices and profits are bare bones. Market analysts say that in many cases, margins are coming down. For one thing, hospitals are increasingly banding together to do their buying, and as collective customers they have more bargaining power.
The accusation is also sometimes made that there is a product froth in medical devices and supplies -- that hospitals often buy fancy gadgets they do not really need.
The industry is sensitive on this issue. Many new products have been sold to hospitals in recent years as labor-saving and therefore cost-cutting devices; the supply industry, in fact, is convinced it can make money out of the existing pressures toward hospital cost containment, even as it did in other ways in earlier, easier days. Cost containment "need not be a negative," one industry analyst has written.
Arthur D. Little Inc., a consulting firm, recently published a paper on the laboratory products business.
"Although the spread of cost containment policies and approaches may adversely affect the growth of revenues in some sectors of the health care industries and compromise their profits," this paper said, "we believe that cost containment efforts represent a potential boon for companies engaged in manufacturing clinical laboratory products."
The argument is that new and fully automated laboratories can save hospitals more money than they cost. It is an interesting question.
Some years ago, in a great technological leap forward, a new, automated blood-analyzing machine was invented. This machine markedly cut the cost of an individual blood test. It quickly became standard equipment in hospitals and labs all across the country.
But then, in part for the very reason that each test had become less expensive, doctors started ordering more of them. Supply had created demand, instead of the other way around, and total national outlays for blood tests rose instead of falling.